Australia’s trade and investment relationships with the countries of Africa: Inquiry report
On 13 June 2016, the Senate referred the following matter to the Senate Foreign Affairs, Defence and Trade References Committee for inquiry and report by 14 February 2018: Australia’s trade and investment relationships with the countries of Africa, with particular reference to:
(a) existing trade and investment relationships; (b) emerging and possible future trends; (c) barriers and impediments to trade and investment; (d) opportunities to expand trade and investment; (e) the role of government in identifying opportunities and assisting Australian companies to access existing and new markets; (f) the role of Australian based companies in sustainable development outcomes, and lessons that can be applied to other developing nations; (g) the role of Australian based companies in promoting the achievement of Sustainable Development Goals; and (h) any related matters.
On 27 November 2017 the Senate agreed to extend the reporting date to 27 April 2018. On 26 March 2018 the Senate agreed a further extension to 21 June 2018.
Overview of Australia’s existing trade and investment relationships with the countries of Africa
The continent of Africa, second only to Asia in both landmass and population, is diverse geographically, culturally, linguistically, and economically. Comprising 54 sovereign states, nine territories, and two de-facto independent states, Africa is home to over 1.2 billion people. This number is increasing sharply, however, with African nations boasting some of the youngest and most rapidly growing populations in the world.
Submissions emphasised the importance of recognising that Africa cannot be described or analysed as a single market but is comprised of discrete economies with separate opportunities.
In its submission to the inquiry, the Department of Foreign Affairs and Trade (DFAT) provided information on trade between Australia and individual African economies. This data indicates that the goods trade with South Africa is, by a wide margin, Australia’s most valuable trade relationship with an African country. In 2016, Australia’s trade with South Africa was valued at over $2 billion.
Australia also maintains trade relationships with several other African countries that, in 2016, were valued at over $100 million. These include Algeria, Egypt, Gabon, Ghana, Mauritius, Mozambique, Nigeria, and Republic of the Congo.
Australia’s major merchandise exports to Africa, in 2016, were largely concentrated in the primary industries, with aluminium ores, wheat, coal, vegetables, meat and wool all featuring in the top 10 exports. Civil engineering equipment and parts, and specialised machinery, together formed 12 per cent of merchandise exports to Africa.
The top five export destinations for Australian goods to Africa in 2016 were:
- South Africa: aluminium ores; coal; machinery and parts.
- Egypt: vegetables; wheat; wool.
- Mozambique: aluminium ores; wheat.
- Nigeria: wheat; edible products.
- Ghana: civil engineering equipment and parts; machinery and parts.
Australia’s major merchandise imports from Africa, in 2016, were concentrated in crude petrol and passenger motor vehicles which accounted for 84 per cent of imports. The top five goods import sources from Africa in 2016 were:
- South Africa: passenger motor vehicles, ores and concentrates.
- Gabon: crude petroleum.
- Algeria: crude petroleum.
- Republic of the Congo: crude petroleum.
- Equatorial Guinea: Liquefied propane & butane.
Barriers and impediments to trade and investment
The African context
The Department of Foreign Affairs and Trade (DFAT) noted in its submission that a range of factors attributed to African society, culture and systems of governance may form a barrier to Australian trade and investment. These factors, which DFAT has collectively termed the ‘African context,’ include:
Local conditions, including traditional leadership structures, land ownership, expectations around remuneration and the broader social responsibility of companies…
DFAT highlighted land ownership as a particular barrier, owing to intersecting systems of ownership at different levels of society: Land ownership in particular can be difficult to consolidate due to competing levels of government (national, state and local), traditional ownership claims, particularly where sites intersect lands of different groups, often with different ownership structures (patrilineal, matrilineal, collective and/or individual) all of which add complexity to large-scale mining, infrastructure and agriculture projects. As is the practice in other developing countries, local landowners may expect mining companies to build roads and schools as part of the company’s Corporate Social Responsibility, in addition to royalties and other land fees being paid to government.
DFAT’s submission also drew attention to the economic systems in place in many African countries as a barrier to trade and investment, noting that the historical factors that shaped these systems are often unlike those of Western countries: Many of the governments of Africa could be best described as taking a state centric, command economy approach to economic development. This can be seen as deriving both from a colonial heritage that utilised resources to enrich foreign elites and the Marxist ideologies of liberation movements with centralised social and economic planning approaches. Unlike the reforms of the last century which have seen a decreasing role for government in markets for liberal democracies, for most African nations the role of government remains central to economic development.
DFAT recommended that businesses draw on the experience of a local partner or consultant in order to navigate these challenges.
Governance and regulation
In its submission, DFAT noted that ‘uncertainty around regulatory regimes can have a chilling effect on potential Australian investment across all sectors’ and issues such as opaque and unfamiliar tendering practices can also deter Australian companies from bidding for government contracts and advantage competitors.
With particular reference to the extractive industry, Oxfam also noted the risks associated with a poorly regulated environment: Poorly regulated environments, as is often the case in natural resource governance, are also conducive to corruption which in turn forms an obstacle to legitimate business sectors developing. Community conflict as a result of unregulated, negative impacts of EI [extractives industry] companies, or a perceived lack of community benefits, can increase business risk as they may be subject to sudden business disruption. There are significant human rights risks in mining, including labour rights transgressions, impacts on women’s security and health, and the displacement of local people to make way for new mines.
To address these issues, Oxfam suggested:
The Australian government and EI companies should be investing in building regulatory capacity in the host country to improve the regulation of EI sectors, in order to increase investment certainty and a more enabling business environment.
DFAT identified inadequate infrastructure as a barrier: Inadequate infrastructure adds to the cost of doing business in Africa, and has led to the failure of major mining projects in the past. Poor road and transport networks, intermittent power and inefficient ports are common challenges across Africa. Technical barriers to trade and underdeveloped logistics networks, such as onerous customs procedures and inefficient ports act much in the same way as poor transport in adding to costs.
Opportunities to expand trade and investment
Overview of opportunities
According to a recent paper from Future Directions International, most of the world’s population growth in the 21st century will occur in Africa. By 2050, it is estimated that the population of Africa will have more than doubled from its current 1.2 billion people to nearly 2.5 billion. This population growth is expected to be coupled with rapid urbanisation. The Future Directions paper anticipates that, by 2100, five of the world’s 10 largest cities will be on the African continent.
Africa also lays claim to the world’s youngest population, with more than 50 per cent of the population of Africa younger than 20 years old. Due to increased life expectancy and reduced infant mortality rates it is expected that Africa will have access to a young and plentiful workforce.
Regarding trade and integration, a Continental Free Trade Area is being established under the auspices of the African Union. Negotiations started at the beginning of 2017 and all 55 African Union members are involved. The Department of Foreign Affairs and Trade (DFAT) pointed out that ‘enhanced African economic integration with a common set of rules and procedures would assist Australian business that generally operate across borders and various African countries’.
There are specific areas where Australia is well placed with relevant expertise beyond mining capabilities. For example Windlab and Carnegie Clean Energy drew attention to the export potential of Australia renewable energy technology to meet a significant energy shortage in large areas of Africa. Carnegie Clean Energy drew particular attention to the potential for leveraging Australia’s mining capability to include power and water solutions.
Grame Barty and Associates also highlighted opportunities for Australian business:
…particularly in the areas of infrastructure, resources and energy, food and agribusiness, international health, advanced manufacturing, technology and services.
DFAT indicated that Australian trade and investment in Africa has recently seen growth in non-extractive sectors in some regions: Traditionally, most Australian investment in Africa has centred on the mining, oil and gas industries. More recently, we have seen investment in the infrastructure and construction industries, as well as telecommunications, agriculture and retail, financial and banking sectors. Expanded trade and investment links are expected for Australian companies operating out of Morocco, servicing North Africa in food and agriculture; infrastructure planning and sustainable development; mining, oil and gas; and health services.
However, in its submission, DFAT noted that recent DFAT and Austrade analysis indicates:
…the most realistic and immediate commercial opportunities for Australian companies in Africa are in mining and related equipment, technology and services; education; agribusiness and food and infrastructure.
The Export Council of Australia stated that ‘Africa is a natural destination for all the products and services related to mining and agriculture in particular’. Other areas of expertise include: infrastructure and construction and related services, financial and professional services, tourism, education, and advanced manufacturing. The top ten growth sectors in Africa are: resources, wholesale and retail, agriculture, transport and communications, manufacturing, financial services, public administration, construction, real estate and business services, and tourism.
Broadening commercial interests
As noted above, with Australian companies well established in the extractive industries, submissions highlighted the need for Australia to broaden commercial interests beyond the mining industry. This was recognised by the Minister for Foreign Affairs, the Hon. Julie Bishop MP in her speech at the Africa Down Under Conference in Perth on 8 September 2017. The Minister emphasised the broadening of Australia’s commercial interests from the already strong base in extractives and mining services, infrastructure and energy into retail and professional services. The Minister stated that ‘[t]he opportunity for mutual growth in our economic partnerships in these and other sectors is enormous’.
Emerging free trade area
Her Excellency Ms Christelle Sohun, High Commissioner of Mauritius, informed the committee that:
A few weeks ago, on 21 March 2018 in Kigali, Rwanda, an agreement was reached for the establishment of an African Continental Free Trade Area. This will create a single African market for the elimination of barriers to trade in goods and services – one billion people and a total GDP of over US$3 trillion, practically on your doorstep. Australia can now engage constructively with African countries to seize the numerous untapped trade and investment opportunities available in Africa.
High Commissioner Sohun added that it was signed by 44 countries. DFAT provided further detail that what was signed on 21 March 2018 was the framework to establish the Continental Free Trade Area which then would need to be ratified by 22 countries before coming into effect and this may take some time:
My expectation is that if the negotiations are completed and the ratification process happens, which could be many years in the making…
However, DFAT welcomed this as a very positive development with the potential to create one of the largest free trade areas in the world which would present opportunities for foreign companies and investors. The agreement has the potential to allow Australian companies with a presence in one African market broader access to new markets on the African continent without the burden of existing trade barriers such as tariffs.
Conclusions and recommendations
While the terms of reference for this inquiry cover Africa in its totality, at the outset, the committee wishes to recognise the key point that Africa is a continent and not a country. Its countries have a great deal of diversity in geography, history, culture, economic capacity and markets.
The African continent is in the midst of significant economic, technological and population growth and this inquiry has provided the opportunity to revisit current settings to ensure that Australia is in the best possible position to take advantage of these changes for trade and investment and contribute skills to facilitate this development.
While noting the already well-developed relationships in the mining industry, demographic, economic and technological changes will provide other opportunities for expansion of the relationship with Africa.
Australia is well-positioned to use its expertise in a range of sectors to contribute to development outcomes in many African countries. Our knowledge and skills in area such as agriculture, the mining sector, education, and technology are highly regarded, and this knowledge will be in high demand in a growing and developing Africa.
The committee notes that overall it will be important for the Australian Government to ensure Australian businesses have broad access to African markets, and that a strong mutual understanding of the importance of the Australia-Africa relationship is cultivated on both sides. Business and trade Emerging free trade area.
Summary of Recommendations
The committee recommends that the Australian Government continue to actively monitor the emerging Continental Free Trade Area with a view to best position Australia to take advantage of it when it comes into force and ensure that businesses and the public are kept informed of the benefits of this agreement.
The committee recommends that Austrade actively monitor and promote non-extractive trade and investment opportunities in Africa to Australian businesses.
The committee recommends that the Department of Foreign Affairs and Trade work with organisers of major promotional events and conferences, such as Australia-Africa Week, to facilitate greater participation of the private sector from industries other than mining.
The committee recommends that the Department of Foreign Affairs and Trade review Australia’s diplomatic representation in Africa with a view to applying new methods of operation.
The committee recommends that the Australian Government explore opportunities to increase the number of Australian ministerial and parliamentary visits to Africa.
The committee recommends that, in relation to the Advisory Group on Australia-Africa Relations (AGAAR):
the Department of Foreign Affairs and Trade and AGAAR, engaging in appropriate consultation with stakeholders, review AGAAR’s role with a view to build on its advisory responsibilities to include a more outward facing function to strengthen the Australia-Africa relationship;
detail about the work and achievements of AGAAR be included on the AGAAR website; and
the Department of Foreign Affairs and Trade include a response to the recommendations contained in the AGAAR strategy paper on its website.
The committee recommends that the Australian Government give further consideration to supporting initiatives that strengthen the regulatory and governance landscape in Africa.
The committee recommends that the Australian Government review its visa assessment process for African travellers with a view to minimising processing times, increasing transparency and to ensure there are no unintended barriers.
The committee recommends the Department of Foreign Affairs and Trade review their Smartraveller advice platform with a view to providing more tailored and specific advice to Australian businesses operating on the African continent.
The committee recommends that the Australian Government consult stakeholders such as the Australia-Africa Minerals and Energy Group on ways to improve data collection regarding Australian mining activity in Africa.
The committee recommends that the Australian Government, in consultation with a range of stakeholders, explore options for improving Africa literacy, awareness, engagement, access to information and research.
The committee recommends that the Australian Government consider increasing Australian Centre for International Agricultural Research’s funding in order to increase research, project and partnership activity in Africa.
The committee recommends that the Australian Government consider an Africa round for Business Partnerships Platform funding for African development projects delivered through public-private partnerships.
The committee recommends the Department of Foreign Affairs and Trade undertake a review of Australian mining and Mining, Equipment, Technology and Services (METS) companies operating on the African continent which undertake engagement and provide services or assistance to the communities in which they operate.
The committee recommends that the Department of Industry, Innovation and Science review its Leading Practice Sustainable Development Program for the Mining Industry to ensure it is up-to-date and incorporates information on the UN Sustainable Development Goals.
The committee recommends that the Australian Government seek to increase the visibility of the Australia Global Alumni program among African alumni in order to formalise alumni networks.
The committee recommends that the Australian Government review its list of Australia Global Alumni ambassadors with a view to including an Ambassador from Africa.